NOTE 3—SUPPLEMENTARY BALANCE SHEET INFORMATION

Accounts receivable is net of allowances for doubtful accounts and sales returns totaling approximately $399,000 and $421,000 at December 31, 2011 and 2010, respectively.

Inventory is net of a provision for excess and obsolete inventory totaling approximately $2.3 million and $1.9 million at December 31, 2011 and 2010, respectively.

During the year ended December 31, 2010, management adopted a plan to sell its German building and land. In June 2010, the Company received an offer to purchase the land and building in Germany for $531,000 and, as such, the Company recorded an impairment charge of $35,000, as the fair market value was below the carrying value. Fully depreciated assets totaling $282,000 which were no longer usable were also written off in June 2010. Assets Held for Sale as of December 31, 2010 totaled $576,000. During April 2011, management decided to expand the Company’s operations in Europe which includes utilizing the land and building in Germany. As such, the land and building were reclassified from Assets Held for Sale to Property, Plant, and Equipment during the year ended December 31, 2011.

On May 20, 2010, the Company entered into a license agreement (the “2010 P&G Agreement”), with Procter and Gamble Company (“P&G”), which replaced an existing license agreement between the Company and P&G (the “2006 P&G Agreement”). Pursuant to the 2010 P&G Agreement, the Company agreed to continue granting P&G an exclusive license to certain of the Company’s patents to enable P&G to develop products aimed at the consumer market and P&G agreed to pay royalties based on sales of products developed with such intellectual property. The prepaid royalty payments previously paid by P&G were applied to the new exclusive license period from January 1, 2009, through December 31, 2010. At the time, the Company had deferred royalty revenue totaling $1.9 million from the 2006 P&G Agreement. The 2010 P&G Agreement permitted the Company to recognize $1.5 million in royalty revenue for the year ended December 31, 2010 related to the 2009 and 2010 exclusivity period. As of December 31, 2010, $375,000 remained in long term deferred revenue. On June 28, 2011, the Company entered into an amendment to the 2010 P&G Agreement (the “2011 P&G Amendment”) which extended the effective period for the 2010 P&G Agreement from December 31, 2010 through June 30, 2011, and resulted in the Company recognizing the previously deferred $375,000 of revenue as royalty revenue during the quarter ended June 30, 2011.

The 2011 P&G Amendment also provided that effective January 1, 2011, P&G’s exclusive license to the Company’s patents converted to a non-exclusive license unless P&G paid the Company a license payment in the amount of $187,500 by the end of the third quarter of 2011, and at the end of each quarter thereafter, throughout the term of the 2010 P&G Agreement. As a result of P&G not making any payments to the Company in the third and fourth quarters during the year ended December 31, 2011, their license converted to a non-exclusive license. The Company is currently engaged an active collaboration with P&G to commercialize a consumer product utilizing its patents.